July 27, 2012
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After Unity Rally in Europe, Reality Check From Spain
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By RAPHAEL MINDER and JACK EWING
MADRID — European markets continued to rally on Friday after the leaders of Germany and France vowed to do everything in their power to preserve the euro zone, echoing comments made a day earlier by the president of the European Central Bank. But data from Spain showed the fragility of the underlying economy as the region’s debt crisis drags on.
And as a reminder that any central bank action could meet resistance from the euro zone’s richest member, Germany’s central bank said Friday that it remained opposed to huge purchases of government bonds by the European Central Bank.
Still, the German chancellor, Angela Merkel, and the French president, François Hollande, who spoke by phone on Friday, issued a joint statement promising that they would do everything they could to save the 17-country bloc.
Their short statement did not detail what steps they think should be taken next. But it allowed the leaders of the euro zone’s two biggest economies to demonstrate their unity.
“Germany and France are deeply committed to the integrity of the euro zone,” the statement said. “They are determined to do everything to protect the euro zone.”
Mario Draghi, the president of the European Central Bank, on Thursday raised hopes for bond market intervention after saying the central bank would do “whatever it takes” to preserve the euro zone.
Whatever general gestures of good will Ms. Merkel might have in mind, though, any move by the European Central Bank to start a bond-buying program would meet resistance from her country’s central bank. German finance officials have long opposed a policy of looser money by the central bank. And word from the German central bank, the Bundesbank, on Friday indicated that attitude had not changed.
“There haven’t been any changes in our position on bond purchases,” said a Bundesbank spokesman, who in line with the bank’s policy refused to be identified by name.
The German central bank stands by its position that bond purchases by the European Central Bank are an unacceptable blurring of the line between government fiscal policy and monetary policy, the spokesman said.
Jens Weidmann, the president of the Bundesbank, has only one vote on the E.C.B.’s 23-member governing council, which meets Thursday. But his dissent could undercut the effectiveness of attempts to influence the bond market. If the European Central Bank appears divided, investors might question its resolve.
In Spain, 5.69 million people ended the second quarter jobless, raising the unemployment rate to a record 24.6 percent, according to the latest national employment statistics published Friday. That compared with 24.4 percent in the first quarter.
Youth unemployment rose to 53 percent in the second quarter, up 1.3 percentage points from the previous quarter and 7 percentage points from a year ago.
The rise in Spanish unemployment underlines the challenge faced by the government of Prime Minister Mariano Rajoy to clean up public finances and to turn around an economy that is sinking further into recession. As part of a new 65 billion euro austerity package announced earlier this year, the government is also set to lower unemployment benefits.
Some of Spain’s leading banks reported significantly lower earnings Friday, largely the result of having to set aside more money to cover loans that could default.
CaixaBank said its first-half profit fell 80 percent, to $202 million, as it set aside an additional $4.55 billion against problem real estate loans. Banco Popular reported a 42 percent decline in first-half profit, to $215 million, after reserving $4.1 billion euros against troubled loans. On Thursday, Banco Santander, Spain’s biggest commercial bank, also reported a sharp drop in profit as a result of similar measures.
European stocks ended the day stronger. The Euro Stoxx 50, a measure of euro zone blue-chip stocks, rose 2.23 percent, and in Spain the IBEX 35 was up 3.91 percent. Spanish and Italian bond yields, a measure of government borrowing costs, were lower for the second day since Mr. Draghi uttered his “whatever it takes” commitment. The yield, or interest rate, on the 10-year Spanish government bond was at 6.657 percent, down 0.171 percentage point. The Italian 10-year yield was at 5.917 percent, down 0.092 percentage point.
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